Section 24 landlord tax: how mortgage interest relief actually works now
Section 24 landlord tax explained: why mortgage interest is no longer deductible, the 20% tax reducer, higher-rate risk, a worked example and SA105 boxes.
Quick answer: Since 6 April 2020, residential landlords can no longer deduct mortgage interest and other finance costs from rental profit. Instead you pay tax on the higher profit figure and then reduce your tax bill by a basic-rate (20%) tax reducer on those finance costs. This can push you into the higher-rate band even though your real cash profit hasn't changed. If you also need to work out whether Making Tax Digital applies to you, try the MTD scope checker.
Section 24 of the Finance (No. 2) Act 2015 quietly rewired how mortgaged landlords are taxed. If you own residential property with a buy-to-let mortgage, this is probably the single rule that costs you the most — and it catches a lot of people out, because the change is about how relief is given, not whether you get it.
This guide explains what changed, why it matters, and shows a full before-and-after worked example so you can see the effect on a real tax bill.
What Section 24 actually did
Before the 2017/18 tax year, a landlord treated mortgage interest like any other running cost: you subtracted it from your rent, and you paid tax on what was left. If you were a higher-rate taxpayer, that deduction saved you tax at 40%.
Section 24 removed that deduction for residential lettings. The change was phased in between 2017/18 and 2019/20, and has been fully in force since the 2020/21 tax year. Now:
- Finance costs are no longer deducted when working out your taxable property profit.
- Instead, your final Income Tax bill is reduced by a basic-rate tax reducer worth 20% of your finance costs.
HMRC's own guidance sets this out in Tax relief for residential landlords: how it's worked out and in the policy paper Restricting finance cost relief for individual landlords.
What counts as a "finance cost"
Section 24 covers more than just mortgage interest. Finance costs include:
- Mortgage interest on residential buy-to-let loans
- Interest on loans to buy furnishings for the let property
- Fees and incidental costs of getting or repaying a mortgage or loan (arrangement fees, broker fees)
It does not apply to:
- Commercial property letting (offices, shops, warehouses) — interest there is still a normal deductible expense.
- Companies — a limited company holding residential property deducts interest as a business expense against Corporation Tax, which is one reason some landlords incorporate.
- Furnished holiday lettings — though note the FHL regime was abolished from 6 April 2025, so from 2025/26 those properties fall under the standard residential rules and Section 24 too.
Why this hurts higher-rate and near-higher-rate landlords
The sting is that finance costs are added back into your profit before your tax band is worked out. Two things follow:
- Your taxable income looks bigger. Because mortgage interest no longer reduces profit, your reported property profit is higher. That can drag you over the £50,270 higher-rate threshold (2025/26 figure — see Income Tax rates and Personal Allowances), or over £100,000 where the personal allowance starts to taper, or over £60,000 for the High Income Child Benefit Charge.
- Your relief is capped at 20%. A higher-rate taxpayer used to get 40% relief on interest. Now the reducer is worth only 20%. So the same mortgage interest gives you half the tax saving it used to.
A basic-rate taxpayer whose income stays comfortably below £50,270 even after the add-back is broadly no worse off — they were only ever getting relief at 20% anyway. The people who lose out are higher-rate taxpayers and those tipped into higher rate by the change.
How the 20% reducer is calculated
The reducer is 20% of the lowest of three figures:
- your finance costs for the year (plus any unused amounts brought forward),
- your property business profits, and
- your adjusted total income (income above your personal allowance, excluding savings and dividend income).
If your finance costs are the lowest of the three, you get the full 20% of them. If profits or adjusted income are lower, the reducer is restricted and the unused finance costs are carried forward to future years. This "lower of" mechanism is explained with worked cases in HMRC's how it's worked out guidance.
Worked example: before vs after Section 24
Meet Priya. She has one buy-to-let flat and a £45,000 salary. Her rental figures for 2025/26:
| Item | Amount |
|---|---|
| Rental income | £18,000 |
| Mortgage interest | £9,000 |
| Other allowable expenses (repairs, agent fees, insurance) | £3,000 |
The old way (pre-Section 24): interest was deductible.
- Taxable rental profit = £18,000 − £9,000 − £3,000 = £6,000
- Added to her £45,000 salary, her total income is £51,000. Almost all of the £6,000 profit sits in the basic-rate band, so tax on the profit is roughly £6,000 × 20% ≈ £1,200.
The new way (Section 24, 2025/26): interest is not deductible; a 20% reducer applies instead.
- Taxable rental profit = £18,000 − £3,000 = £15,000 (interest is no longer subtracted)
- Added to her £45,000 salary, total income is £60,000. Now around £9,730 of her income sits above the £50,270 higher-rate threshold and is taxed at 40%.
- Tax on the £15,000 profit is a mix of 20% and 40%: about £5,270 falls in the basic band (£5,270 × 20% = £1,054) and about £9,730 in the higher band (£9,730 × 40% = £3,892), so roughly £4,946.
- She then gets a tax reducer of 20% × £9,000 finance costs = £1,800.
- Net tax on the property ≈ £4,946 − £1,800 = £3,146.
Same rent, same mortgage, same cash in her pocket — but her tax bill on the property has jumped from about £1,200 to about £3,146. Section 24 alone added roughly £1,950 to her bill, because part of her income was pushed into the 40% band and her interest relief was capped at 20%.
(Figures are illustrative and rounded; they ignore the personal allowance interaction and assume the salary uses the allowance. Use our self-employed and property tax calculator to model your own numbers.)
How Section 24 appears on your SA105 tax return
You don't hide finance costs — you report them in a specific box so HMRC can apply the reducer. On the SA105 UK property pages:
- Box 44 — Residential property finance costs. Put your mortgage interest and other finance costs here. This is the figure the 20% reducer is calculated on.
- Box 45 — Unused residential finance costs brought forward. Any finance costs that couldn't be relieved in an earlier year (because of the "lower of" cap) are carried forward and entered here.
Crucially, you do not include these finance costs in your allowable-expenses total (boxes 24–29) — that would double-count them. The current form and its notes are on GOV.UK at Self Assessment: UK property (SA105); read the box-by-box notes there each year, as box numbers occasionally shift.
Once Making Tax Digital for Income Tax applies to you, the SA105 return is eventually replaced by quarterly updates plus a final declaration — but the underlying Section 24 treatment is unchanged. See our guide on MTD for landlords for how the digital regime fits together, and check your timing with the MTD deadline calculator.
Practical takeaways
- If you have a mortgaged residential let, assume Section 24 affects you and check whether the add-back pushes you over £50,270, £60,000 (Child Benefit) or £100,000 (personal allowance taper).
- Keep clean digital records of interest and finance fees separately from other expenses — you'll need the finance-cost figure for box 44, and MTD will require digital records anyway.
- Incorporation, offsetting against a commercial let, or a spouse holding the property in a lower band are sometimes floated as responses — but each has its own costs and pitfalls (Stamp Duty, Capital Gains Tax, mortgage terms), so take advice before acting.
Ledgers keeps your rental interest tagged correctly year-round, so your box 44 figure and your MTD quarterly updates line up without a spreadsheet scramble. This guide is general information, not personalised tax advice — for your own position, check the GOV.UK guidance linked above or speak to an accountant.
Frequently asked questions
Can landlords still claim mortgage interest against rental income?
Not as a deduction from profit for residential lettings. Since 2020/21 you instead receive a basic-rate (20%) tax reducer on your finance costs. Commercial-property landlords and limited companies can still deduct interest as a normal expense.
Does Section 24 apply to basic-rate taxpayers?
The mechanics apply to everyone, but the impact is usually neutral for genuine basic-rate taxpayers, because they were only ever getting 20% relief. The risk is that adding interest back to your profit tips you into the higher-rate band — at which point the 20% cap starts to bite.
What is the 20% tax reducer and how is it worked out?
It's a reduction to your final Income Tax bill equal to 20% of the lowest of: your finance costs, your property profits, or your adjusted total income. If profits or income are lower than your finance costs, the unused portion carries forward to future years. HMRC's worked-example guidance walks through several cases.
Which SA105 box do I use for mortgage interest?
Box 44 (residential property finance costs) for the year's interest and finance fees, and box 45 for any unused finance costs brought forward from an earlier year. Do not also include them in your general expenses boxes.
Did the abolition of the FHL regime change anything for Section 24?
Yes — from 6 April 2025 furnished holiday lettings no longer have their own reliefs and are treated like ordinary residential property. That means finance costs on former FHL properties now fall under the Section 24 restriction from 2025/26 onwards.